Texas community college performance-based funding model faces 'growing pains'
After the implementation of Texas community college performance-based funding model (HB 8), student outcomes exceeded expectations, leading to a state funding shortfall. The coordinating board's formula adjustments may reduce fiscal year 2027 appropriations. College leaders praised the model at a Senate hearing but requested supplemental appropriations from the legislature and improvements to the forecasting model.
Core Summary
- Texas Community College Association CEO Ray Martinez III said at a state Senate hearing on Tuesday (July 22) that the performance-based funding model is experiencing financial 'growing pains.'
- Less than a week after the Texas Higher Education Coordinating Board approved formula adjustments that could significantly reduce performance funding for colleges, Martinez and other college leaders still praised the system. The board made adjustments because community college student outcomes exceeded what legislators had budgeted for.
- Since the new funding model was passed by the state legislature in 2023, formula funding for community colleges has increased from $1.8 billion to approximately $2.4 billion in the current two-year budget cycle, according to Martinez.
In-Depth Analysis
HB 8, enacted in 2023, ties community college funding to student outcomes, such as completing certificates in high-demand fields and successfully transferring to four-year universities.
Since implementation, enrollment at Texas community colleges has grown by about 12% from fall 2023 to fall 2025, while student achievements have almost universally exceeded state projections, Sarah Keyton, deputy commissioner for administrative affairs at the Coordinating Board, said at Tuesday's meeting.
For example, San Jacinto College Chancellor Brenda Hellyer said the college's graduating class last year reached 7,247 students, the largest ever, earning 9,293 certificates, an 18% increase over the previous year.
But higher-than-expected outcomes mean the state's funding obligations are growing faster than anticipated. To address this, the Coordinating Board last week adjusted the weights of certain outcomes in the formula, which could reduce the millions of dollars community colleges expect to receive in fiscal year 2027, according to The Texas Tribune.
According to the news outlet, the Coordinating Board is managing a $1.2 billion funding cap for community colleges until the next legislative session begins in January.
This week, community college representatives praised HB 8, touted their achievements, and expressed willingness to work with the legislature to ensure the long-term stability of the funding model.
Martinez told the Senate committee on Tuesday that his department is asking the legislature at the 2027 legislative session for 'a supplemental appropriation to recognize the outcomes students have already achieved, and a biennial appropriation that keeps pace with, rather than lags behind, the student success we have achieved.'
According to the Tribune, during the previous biennium, legislators passed approximately $90 million in supplemental funds to pay community colleges what they were owed under the formula.
Through HB 8, Texas community colleges have had to manage uncertain funding tied to outcomes. Lone Star College System Chancellor Mario Castillo noted the risk of hiring staff such as counselors funded by 'HB 8 funds' because funding can fluctuate. If funds run out, it could lead to layoffs.
Given this reality, 'we do not use HB 8 funds for any program that cannot be cut almost overnight,' Castillo said, noting that his institution is 'fortunate' to have that flexibility.
Looking ahead, multiple speakers noted that stabilizing HB 8 funding requires building better forecasting models into the funding formula.